Starting a Studio. John Chasey. CEO, Metismo Ltd President, FinBlade Ltd

Transcription

1 Starting a Studio John Chasey CEO, Metismo Ltd President, FinBlade Ltd

2 My Background Computer Science Degree Worked for games company while at Uni Worked in PC/Console Games sector for decade Founded my own console development company in 1998 Founded a mobile development company (IOMO) in 2000 Sold IOMO to NASDAQ-listed InfoSpace for $15m in Years as VP Euro Ops and VP Global Games at INSP CEO/Founded Metismo in 2007 (Mobile Tech Company) Chairman/Founded FinBlade in 2007 (Mobile Content Studio) Mentor for Kempt Advergaming Studio Non-Exec Director for Cloud 9 Living (Eco House Builder)

3 This Talk Practical advice for those starting a studio Some examples of schemes available to companies in the creative industries sector in the UK This is general advice this should give you ideas on avenues to explore with your professional advisors Finally a look at how technology can make a big difference to your approach to the market (apologies in advance for the plug)

4 Starting a Studio The Scenario Small group of creatives Bert, Charlie, Dave and Ernie Have a great idea for a game Want to make the game they couldn t do in a large company The casual / mobile market has given them the opportunity to fulfil this dream Let s get together and get on with it After all nothing is more important than making stuff

5 Nothing is more important that making stuff Quick Answer BUT Absolutely correct If you don t have a product that somebody wants to buy (publisher or consumer) then the company will fail anyway If you are a success And if you don t think you will be, why are you doing this in the first place? Not planning for success can come back to bite you in a year or two

6 Imagine the situation The company is established Half a dozen games have been launched They are performing well But that next product requires external funding of some kind before it can be completed We need to raise some money somehow Start talking to advisors and all of a sudden the tax position and structure of the company is not as attractive to investors as it could be

7 The Solution Understand what some of the options are BEFORE the company is incorporated A little time and money spent here could make the difference in terms of tens or hundreds of thousands of pounds a few years later Good advisors can be very valuable don t begrudge paying money for good advice

8 Choosing Professional Advisors Family friends are almost definitely the wrong choice, unless they happen to specialise in the games/casual/mobile sector They will know the general issues, but will not be able to advise on the sector specific concerns An experienced lawyer will be able to advise if the commercial terms are significantly different from other deals they have worked on You may have a cheaper per-hour rate, but how many billable hours do you want to spend where the lawyer is learning the sector on your tab?

9 Choosing Professional Advisors How to Choose who to engage? Speak to peers in the industry Who are they working with, would they recommend them? What rates do they charge? Professional Fees Each firm will have an hourly rate based on location/staff Haggle! For each piece of work/project discuss with the advisor and ask them for a fixed price quote

10 Mentors & Non-Executive Directors What s the difference? Role can actually be very similar but a mentor is generally focussed on supporting an individual (e.g. CEO) Non-Exec director sits on board advising the company In a small studio this can effectively be the same thing, although there are legal obligations for a NED. Why pay money out to advisor/mentor/ned? Very difficult decision to make for a young company They have probably made all the mistakes you will make previously its cheaper to pay them than make those mistakes yourself!

11 Investment We need to raise some money to get the company off the ground what are the options? Equity Company issues new shares to investor, money paid for shares goes into company to fund growth How do you attract investment? Debt Company borrows money from individual or institution Banks do not want to lend money right now Will demand personal guarantee from Directors

12 Debt - Enterprise Finance Guarantee New name for Small Firms Loan Guarantee Scheme Government guarantees 75% value of a loan of between 1,000 and 1million over a term of up to 10 years 2% fee Charged on top of bank rate this is not a cheap loan Bank rate will be several percentage points above the base rate 100% Joint and Several Personal Guarantees demanded of Directors Bank still make the lending decision based on their normal criteria Really only useful if you have limited assets for security

13 The 3 F s Friends Family Fools Equity Sources of Finance Cliché, but most realistic option for startups Venture Capitalists Minimum investment amount in 3m- 5m range Cost of due diligence/deal/fees will be approx 100k Significant equity required, with business plan showing strong growth with exit valuation in 25m- 75m range in 3-5 years They expect majority of their investments to fail

14 Equity Business Angels Sit between the 3F s and VCs Individuals who have been successful in business Looking to invest in new ventures, and possibly get involved on a day to day basis Investments usually in the 25k - 100k range Depending on size of equity required may need to bring together a consortium of Angels A good fit for companies in the creative industries sector But there are many investment opportunities how to make your company stand out to angels?

15 EIS Enterprise Investment Scheme Government scheme to promote investment in qualifying companies through tax incentives Income Tax Relief 20% of the amount an individual invests in the company can be offset against their tax bill. Capital Gains Tax Freedom When shares are sold there is no Capital Gains Tax to pay Many requirements for both investor and company to qualify

16 EIS Enterprise Investment Scheme Some of the requirements: Individual may not hold more than 30% of shares Individual cannot be already connected to the company Employee or partner Spouse or child, but sibling is fine Minimum investment of 500, maximum of 500,000 Shares must be held for three years before sale Company cannot be working in sectors such as land, property, financial, accountancy, legal, shipbuilding, coal or steel production The tax relief can be removed should the company or individual cease to qualify

17 EIS Enterprise Investment Scheme Some of the requirements: Individual may not hold more than 30% of shares Individual cannot be already connected to the company Employee or partner Spouse or child, but sibling is fine Minimum investment of 500, maximum of 500,000 Shares must be held for three years before sale Company cannot be working in sectors such as land, property, financial, accountancy, legal, shipbuilding, coal or steel production The tax relief can be removed should the company or individual cease to qualify

18 Tax Relief for Founders Great news for investors but what is the situation for founders? Alan sells his share in the company for 1m The current CGT rate is 18% Personal allowance is 9,600, so tax due is 178,272 Entrepreneurs Relief Lifetime limit of 1m You must own at least 5% of the company and be an employee or officer So in this case Alan will not have to pay any CGT

19 Tax Relief for Founders Bert, Charlie, Dave and Ernie however have hit the big time with the sale of their company for 20m, netting them 5m each for their quarter shares The Entrepreneurs limit is 1m so CGT is payable on 4m A tax bill of 718,272 results Alternatively if they had set the company up under EIS The whole amount could be tax-free Tax bill reduced by over 700k each For the sake of some research and time spent when setting the company up And the company is that much more appealing to investors prior to a full sale

20 R&D Tax Credit Ability to get tax credit for R&D related work carried out during the year Can be deducted from tax bill if in profit, or as rebate from PAYE tax paid if not Not the easiest thing to claim advice from a firm that have made successful claims in your area will significantly improve chances Once you have made a successful claim, subsequent years appear to be straightforward A small studio could claim 5 figures, into 6 figures for large studios

21 The Role of Technology In a similar way to the company structure, technology can often be overlooked Many companies have setup and focussed on the iphone Product has launched but sales disappointing not because of lack of quality, but lack of visibility amongst sea of other titles One argument for using a Publisher What other channels have been considered?

22 The Missed Opportunity The iphone only represents 1% of the mobile installed base The AppStore is incredibly overcrowded with content Stats show that the majority of developers have only developed one app each, not a sign that it is a nirvana If your idea/concept/brand is strong enough to work in one market then it should work in other markets too So why would you not want to exploit that idea/concept/brand in all available channels? Therefore before you start development you should consider what technology is available to aid a multi-platform approach

23 The Problem Cross Platform Tech Thousands of models of handsets on the market, all slightly different Developing specific code for each and every one is not practical The Solution Use technology to help you out to automate many of the issues surrounding development on mobile Initial solutions were for Java handsets only, now also native This is a non-trivial problem, so depending on the design and architecture of the technical solution different approaches are used by different companies and the range of non-java handsets supported varies considerably

24 Software Distillery Cross Platform Tech Partner with third-party Innaworks to convert to BREW, iphone and Windows Mobile J2ME Polish Offer support to other Java-based handsets such as Android & Blackberry plus Windows Mobile Javaground Offer support to BREW, iphone, Android and Windows Mobile Metismo Offer support to BREW, iphone, Android, Windows Mobile, Symbian, Blackberry, Antix, Sony PSP and Nintendo DS

25 How does it work? Bedrock from Metismo Different solutions take different approaches and we think its testament to the range of platforms that we offer that shows that the Bedrock solution is the most flexible and efficient Initial project is written in standard Java to standard J2ME APIs Bedrock libraries can be used by the programmer to ease porting issues across devices but are not required The application is developed in a standard editor such as Eclipse or other IDE as preferred by the programmer The Phoney emulator is used to preview code and allows source level debugging on all builds The programmer selects a target handset to build

26 How does it work? Bedrock from Metismo If a Java target is selected a JAD and JAR are generated For a non-java target the cross compiler is invoked and the Java source is translated into human readable C++ source code preserving all comments The generated source code can be edited by the programmer and additional native code inserted if required The generated source is then compiled with the target platform official compiler along with Bedrock libraries to generate a fully native binary There is no runtime engine required which avoids the restrictions imposed by handset manufacturers such as Apple, Sony, Nintendo

27 Testimonials It really is like having 1 or 2 members of staff allows us to use non-senior engineers for development on platforms which they didn't work on in the past unique in the market achieves an amazing amount of time-saving allows us as a studio to execute more projects simultaneously with same team size

28 Summing Up None of this is can be substituted for actually doing stuff You still need to have a great idea, passion and the team to execute it But rather than waiting for that success and then discovering problems, plan ahead Consider the structure of your company and plan for that success now Similarly look at the broader picture of where your content will go tomorrow as opposed to just today Then when success comes, it will be much more profitable!

29 Questions? John Chasey